* German yields rise ahead of Italian, euro zone inflation data
* Consumer price data could add to debate ahead of ECB meeting
* Kaplan speech could hint at Fed direction amid Trump troubles
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
LONDON, May 31 (Reuters) - German bond yields edged higher and most other euro zone government bonds were steady on Wednesday on expectations that Italian consumer prices data will help shore up inflation across the single currency bloc.
High-grade euro zone bond yields have dropped in recent days on below-forecast inflation numbers from Germany and Spain, data that supports ECB President Mario Draghi’s argument that monetary policy should remain ultra-loose in the bloc.
However, both Italian and euro zone inflation data for the month of May are due at 0900 GMT, and analysts say the Italian figure will have strong implications for the wider region. A Reuters poll is expecting 1.5 percent growth in each case.
“In case we have a surprise in Italian inflation, which is possible because of increased prices in the services sector, you could see Bund yields moving higher,” said DZ Bank strategist Daniel Lenz. “Our economists forecast the Italian number to be 1.7 percent, which could mean that the euro zone number is 1.6 percent, which is higher than expectations.”
The yield on Germany’s 10-year government bond, the benchmark for the region, was up 1.5 basis points at 0.31 percent.
The gap between Italian and German 10-year yields came off four-week highs hit on Tuesday, and was at 187 bps.
Inflation numbers are under particular scrutiny ahead of a European Central Bank meeting next week.
Draghi said on Monday that even though risks to euro zone growth have declined, he was convinced that an extraordinary amount of monetary policy support is still necessary.
However, policymakers are divided on the issue - and are set to take a more benign view of the economy when they meet on June 8 and will even discuss dropping some of their pledges to ramp up stimulus if needed, four sources with direct knowledge of the discussions told Reuters.
The focus on Italian inflation takes the attention away somewhat from the concerns around political uncertainties in the country, and has stemmed a steady rise in Italian government borrowing costs.
Italian government bonds sold off sharply on Monday after former prime minister Matteo Renzi raised the prospect of early elections over the weekend. The yield on Italy’s 10-year government bonds are still up 8 basis points this week.
Later on Wednesday, investors will turn attention to another central bank, with U.S. Federal Reserve member Robert Kaplan due to speak in New York.
“The key question is whether the political turbulence in the U.S. has any impact on monetary policy,” said DZ Bank’s Lenz.
The White House said on Tuesday that U.S. President Donald Trump’s communications director is leaving the job as Trump tries to contain political damage from investigations into Russia and his presidential campaign.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by Abhinav Ramnarayan; Editing by Andrew Heavens